Residence nil rate band and who actually receives the proceeds of sale of the property

A Will creates a discretionary trust in respect of the whole estate and the letter of wishes indicates that the deceased would like part of the trust fund to go to charity and part to direct descendants. Residence NRB (and deceased’s spouse RNRB) have been claimed. The estate comprises shares; cash and property. The shares and bank accounts have been realised and the Executors wish to make interim distributions to the direct descendants now (within 2 years of the date of death) before the property has been sold. This would effectively mean the charities would receive cash from the net proceeds of sale of the property at a later date. Should the direct descendants ONLY receive the net proceeds of sale of the property or does it not really matter who receives what, provided that the amount the direct descendants receive from the estate/trust is equal to or in excess of the value of the property?

Geraldine Craig
Tanners Solicitors LLP

You appoint the property or share in s144 to obtain the RNRB. The direct descendants are then entitled to that, or the proceeds if sold within the trust at their direction

Simon Northcott

Thanks Simon, I’m still a little unclear: are you saying that you CAN appoint the net proceeds of sale of the shares to the value of the property to the direct descendants (ie provided the direct descendants receive the value of the property) and that the charities can then benefit at a later date when the property is sold OR MUST the direct descendants ACTUALLY receive the net proceeds of sale of the property on which residence NRB has been claimed?

Geraldine Craig
Tanners Solicitors LLP

If the trustees appoint the house/share of house to the direct descendants-it then belongs to them, and the trustees hold it on bare trusts for them. You cannot get the rnrb unless you do this.

The DDs could direct the house to be sold by the trustees on their behalf and receive the proceeds.

The DDs could agree to sell the house/share to the trust, so the trust could then pay over cash to them-this would be the effect of them receiving cash instead of the house. Whether or not that is a good idea depends on the tax/sdlt effects of doing so-which I imagine would not be good.

Simon Northcott

Leaving the property on a discretionary trust (even if beneficiaries include lineal descendants of the testator) will not qualify for the RNRB.

Lineal descendants must inherit, generally absolutely, or on an IPDI, disabled or BMT or 18-25 trust.

Thus, it will be necessary for the trustees under s.144 to appoint the property (or a share therein) out to one or more lineal descendants (or on an IPDI) within 2 years of death.

Malcolm Finney

The value of the property at date of death was £445k. It almost sold for £510,000 – a gross gain of £65K (unfortunately the sale fell through).

We claimed residence nil rate band allowance x 2 on the basis that 75% of the estate was going to the family (direct descendants) and this would include the residence. (25% of the residue after IHT is to go to charity)

I’ve drafted a Deed of Appointment (within 2 years of death) in respect of the beneficial interests being appointed to various family members (all direct descendants), which of course means that they receive the net proceeds of sale when it eventually sells.

Am I right in assuming that the ‘residue’ as far as calculating the 25% for the charities is concerned, relates only to the values @ d/o death, ie we don’t include any gain in value in respect of the property which is being appointed to the family?

Geraldine Craig
Tanners Solicitors LLP